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I am concerned in a case relating to a pre-6th April 2007 credit card agreement so that Section 127(3) of the Consumer Credit Act 1974 is applicable.
I am arguing that the agreement does not contain all the prescribed terms and is, therefore, irredeemably unenforceable under Section 127(3).
Being a running-account credit agreement, one of the prescribed terms is a term as to the credit limit as provided in paragraph 3 of Schedule 6 to the Consumer Credit (Agreements) Regulations 1983 (“the Agreements Regulations”). Paragraph 3 requires a term stating the credit limit or the manner in which it will be determined or that there is no credit limit.
The agreement with which I am concerned states (in common, I believe, with most other credit card agreements) that the credit limit will be determined by the creditor and notified to the debtor. As this is not a term stating the credit limit or that there is no credit limit, it must, for the purpose of paragraph 3, be intended to be a term stating the manner in which the credit limit will be determined.
My argument is that a statement that the credit limit will be determined by the creditor and notified is not a term stating the manner in which the credit limit will be determined and that such a term must set out the basis and criteria for determining the credit limit - for example, it might state that the credit limit will be a specified proportion of net income.
In support of that argument, I think that Schedule 1 to the Agreements Regulations, which deals with the information to be included in regulated agreements, is relevant. Paragraph 8 of Schedule 1 specifies the information as to the credit limit to be given in a running-account credit agreement and sets out five different ways in which the information may be given – one of those ways is a statement that the credit limit will be determined by the creditor and notified to the debtor and another way is a statement indicating the manner in which the credit limit will be determined.
Therefore, under paragraph 8 a statement that the credit limit will be determined by the creditor is not within and is different to the requirement for a statement indicating the manner in which the credit limit will be determined.
If this is the case in relation to paragraph 8 of Schedule 1, then it must also be the case in relation to paragraph 3 of Schedule 6 of the same Regulations, so that a statement that the credit limit will be determined by the creditor does not satisfy the requirement for a prescribed term stating the manner in which the credit limit will be determined.
It follows, therefore, that the agreement does not contain all the prescribed terms and is irredeemably unenforceable under Section 127(3) of the CCA 1974.
Another way of looking at the above argument is that paragraph 8 of Schedule 1 specifies five ways of giving information as to the credit limit and three of those five ways are carried over into paragraph 3 of Schedule 6 for the purposes of the prescribed terms – the statement that the credit limit will be determined by the creditor is not one of the three ways carried over into paragraph 3.
I am not aware of any reported case in which the above point has been argued but it may have been raised in an unreported county court case. If anyone is aware of it having been used in any county court or other case, please let me know and also let me know the outcome and if it is reported anywhere.
I should also be grateful for any comments on the above argument and for any counter-arguments or as to any flaws in the reasoning.
If it is correct that most, if not all, pre-6th April 2007 credit card agreements state that the credit limit will be determined by the creditor and it is correct that this does not satisfy the requirement for a prescribed term as to the credit limit, then all such agreements are irredeemably unenforceable.
Faced with this possibility, the judges may consider that as a matter of public policy they cannot allow millions of people to avoid payment of credit card debts with the loss to the banks of billions of pounds which (together with the overcharging and PPI repayments) may bring the system to the brink of collapse again. In those circumstances, the judges may try to find a way round the argument so as to decide in favour of the banks or the government may take steps to reverse the position.
I am arguing that the agreement does not contain all the prescribed terms and is, therefore, irredeemably unenforceable under Section 127(3).
Being a running-account credit agreement, one of the prescribed terms is a term as to the credit limit as provided in paragraph 3 of Schedule 6 to the Consumer Credit (Agreements) Regulations 1983 (“the Agreements Regulations”). Paragraph 3 requires a term stating the credit limit or the manner in which it will be determined or that there is no credit limit.
The agreement with which I am concerned states (in common, I believe, with most other credit card agreements) that the credit limit will be determined by the creditor and notified to the debtor. As this is not a term stating the credit limit or that there is no credit limit, it must, for the purpose of paragraph 3, be intended to be a term stating the manner in which the credit limit will be determined.
My argument is that a statement that the credit limit will be determined by the creditor and notified is not a term stating the manner in which the credit limit will be determined and that such a term must set out the basis and criteria for determining the credit limit - for example, it might state that the credit limit will be a specified proportion of net income.
In support of that argument, I think that Schedule 1 to the Agreements Regulations, which deals with the information to be included in regulated agreements, is relevant. Paragraph 8 of Schedule 1 specifies the information as to the credit limit to be given in a running-account credit agreement and sets out five different ways in which the information may be given – one of those ways is a statement that the credit limit will be determined by the creditor and notified to the debtor and another way is a statement indicating the manner in which the credit limit will be determined.
Therefore, under paragraph 8 a statement that the credit limit will be determined by the creditor is not within and is different to the requirement for a statement indicating the manner in which the credit limit will be determined.
If this is the case in relation to paragraph 8 of Schedule 1, then it must also be the case in relation to paragraph 3 of Schedule 6 of the same Regulations, so that a statement that the credit limit will be determined by the creditor does not satisfy the requirement for a prescribed term stating the manner in which the credit limit will be determined.
It follows, therefore, that the agreement does not contain all the prescribed terms and is irredeemably unenforceable under Section 127(3) of the CCA 1974.
Another way of looking at the above argument is that paragraph 8 of Schedule 1 specifies five ways of giving information as to the credit limit and three of those five ways are carried over into paragraph 3 of Schedule 6 for the purposes of the prescribed terms – the statement that the credit limit will be determined by the creditor is not one of the three ways carried over into paragraph 3.
I am not aware of any reported case in which the above point has been argued but it may have been raised in an unreported county court case. If anyone is aware of it having been used in any county court or other case, please let me know and also let me know the outcome and if it is reported anywhere.
I should also be grateful for any comments on the above argument and for any counter-arguments or as to any flaws in the reasoning.
If it is correct that most, if not all, pre-6th April 2007 credit card agreements state that the credit limit will be determined by the creditor and it is correct that this does not satisfy the requirement for a prescribed term as to the credit limit, then all such agreements are irredeemably unenforceable.
Faced with this possibility, the judges may consider that as a matter of public policy they cannot allow millions of people to avoid payment of credit card debts with the loss to the banks of billions of pounds which (together with the overcharging and PPI repayments) may bring the system to the brink of collapse again. In those circumstances, the judges may try to find a way round the argument so as to decide in favour of the banks or the government may take steps to reverse the position.
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